The Ethereum Network Just Experienced a Monumental Development

Joe Weisenthal (0:10)

Oh, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, something very big is happening in the crypto world. And it's not about lines going up or down, because so much of what excites me about crypto is that the lines move so much.

That's fun. But there's something else, and it's not strictly price related.

Tracy Alloway (0:31)

The merge, the merge. I feel like someone needs to make a movie poster with the merge written in creepy letters and make it look like an old horror movie kind of thing. But yeah, the merge is happening in Ethereum.

Joe Weisenthal (0:42)

Yeah, right. And so people have been telling us, oh, you gotta have a merge episode. There's so much going on. We can't always get around to every topic, but this is like Ethereum is switching its consensus mechanism from proof of work, which is like kind of like Bitcoin mining, very energy intensive mining operation that most people associate with crypto to proof of stake. And so it'll be a different approach to creating and validating blocks.

And they've been working on it for years and years and years, and it's finally happening.

Tracy Alloway (1:11)

So I'm going to caveat this discussion with the fact that I haven't been following this very intently. However, I do find it interesting because it gets to something that you wrote, I guess it was a year ago or so now about, the crypto world kind of splitting into these two different camps. And on the one side, you have people who are very into the technology.

And technology, one aspect of technology is that it evolves, it changes. And so in that respect, this is Ethereum evolving and changing in a very big way. But the other camp in crypto are the sort of Bitcoin maximalists, the fundamentalists who don't want to see anything change about Bitcoin and the technology at all.

Joe Weisenthal (1:54)

I'm really glad you brought this up. I think that is spot on because there's this question of like, well, what is crypto? Is it software or is it money?

And I think there's like these two camps. And if it's software, right? Or if software is a really big component, then a part of software is upgrades, right? Upgrade cycles. And you know, it's like Microsoft might update its browser or something every year or something. And then at some point, they're like, the old browser will not be supported. You can't use it anymore, right?

Whereas the sort of like money stance, the sort of like hardcore Bitcoin view is, no, if you're going to like have money, you don't ever want to be told this money isn't good anymore or there's been a hard fork or there's been some sort of change to the network and you have to do something, you have to change something, you have to like update your software to use it. And I think these are like fundamentally very big things. And I think this merge, this huge switch from sort of traditional mining to proof of stake is really important, sort of culturally setting Ethereum apart from Bitcoin and its willingness to change the rules from time to time of the network.

Tracy Alloway (2:58)

A touchstone moment for crypto, but it also gets to the idea of pros and cons of different types of blockchains. So Ethereum is trying to solve one problem here, which might, for instance, be energy use, which a lot of people have focused on. A lot of crypto critics have focused on saying that mining wastes a ton of energy. So why don't we try to fix that?

But on the other hand, does the new design come with its own set of problems? And we've already seen some noises around the idea of, well, maybe you're making it less censorship resistant, and we're going to get into that.

Joe Weisenthal (3:31)

Yes. And so one of the developments over the last several weeks is the Treasury's sanctioning of tornado cash, which is a way for people to obfuscate their Ethereum transactions through a mixer. And it's the first time that the Treasury has ever sanctioned a piece of software, which is pretty interesting.

But then it also raises the question, well, if they can sanction a piece of software, why can't they sanction Ethereum itself? Or can they tell Ethereum holders or Ethereum stakers in this new proof-of-stake mechanism? It's like, you're going to get in trouble if you process blocks from entities that are trying to launder money, et cetera.

A whole new can of worms, it's always evolving. We're always trying to keep up here on the podcast. So let's try to learn some more about it.